In Parts 1 and 2, we explained that it is tax-loss selling season. Every year around this time investors are afforded the opportunity to sell their losing positions thereby "harvesting" their tax losses to offset and/or eliminate the capital gains that they may have realized on their other positions. Tax-loss selling is often concentrated in those stocks that have suffered the greatest declines during the year. We therefore like to review the list of stocks with the greatest year-to-date declines and attempt to identify from that list a few names that look "oversold," have decent fundamentals and which might be subject to a technical bounce as tax-loss selling dries up as the end of the year approaches and disappears entirely with the advent of the new year. To that end we have identified 15 stocks that have suffered year-to-date declines of at least 40%, have a small enough market cap that the tax-loss selling could have artificially depressed share prices and are predicted to have earnings per share and/or revenue increases in the next fiscal year compared with the current year. Here are the next five companies on our list:
Swift Energy Company (SFY)
Swift Energy engages in acquiring, exploring, developing and operating oil and natural gas properties. Swift is a $662 million market cap company that trades an average of 744,000 shares per day. Swift is estimated to earn $0.53 per share this fiscal year with the earnings estimate to increase next year to $1.41. Revenue is projected at $556 million this year and estimated to increase to $672 million next year. Book value is $23.80 per share. Barchart.com puts the 50-day moving average at $16.16. As of November 30, Nasdaq listed the short interest ratio at a high 6.94 days to cover.
ServiceSource International, Inc. (SREV)
ServiceSource manages the service contract renewals process of maintenance, support and subscription agreements for technology and life sciences companies. ServiceSource is a $442 million market cap company that trades an average of 1 million shares per day. The company is slated to earn $0.07 per share this fiscal year with earnings flat the following year. Revenue is estimated at $239 million this fiscal year increasing to $267 million next year. Barchart.com lists the 50-day moving average at $6.69 and the latest Nasdaq data has the short interest at a high 6.52 days to cover.
Staar Surgical Company (STAA)
Staar engages in the design, manufacture and sale of implantable lenses for cataracts and refractive surgery. Staar has a market cap of $211 million and trades an average of 115,000 shares per day. Staar is estimated to earn $0.01 per share this fiscal year and $0.09 per share next year. Revenue is estimated at $64 million this year and projected to increase to $71 million next fiscal year. The moving average is $5.86 per Barchart.com and Nasdaq has the short interest at a very high 21.12 days to cover, potentially accelerating any recovery in the stock price.
Tempur-Pedic International, Inc. (TPX)
Tempur-Pedic manufactures, markets and distributes bedding products worldwide. Tempur-Pedic has a $1.8 billion market cap and trades an average of 1.8 million shares per day. Earnings are estimated at $2.55 per share this fiscal year and $2.73 per share next year. Revenue is estimated at $1.4 billion this year and estimated to increase to $1.43 billion next year. The 50-day moving average is $28.39 per Barchart.com. The short interest is listed at 5.74 by Nasdaq.
Twin Disc, Incorporated (TWIN)
Twin Disc designs, manufactures and sells marine and heavy duty off-highway power transmission equipment worldwide. Twin Disc is a $198 million market cap company that trades an average of 82,000 shares per day. Earnings are estimated to be $0.62 this fiscal year and are slated to increase to $0.82 next year. Revenue is estimated to be $287 million this year increasing to $307 million next fiscal year. The 50-day moving average is $16.14 per Barchart.com. The November 30, data from Nasdaq has the short interest at a very high 20.32 days to cover, which could add fuel to the fire on the upside.
In conclusion, all of the companies featured above have had a horrendous year in the stock market with each down in excess of 40% year to date. Each company is a prime candidate for tax-loss selling and since all of the companies have a relatively small market capitalization we feel that their stock prices likely have been artificially depressed by shareholders selling for tax reasons. Surprisingly, each of our featured companies has good fundamental outlooks with all projected to have top line growth in the next fiscal year. Additionally, technicals are starting to turn favorable as each of the companies has either broken through its 50-day moving average or is on the verge of doing so. We feel all of this sets the stage for a potentially rewarding 30-45 day trade in each of these companies.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.